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Starboard Agrees to Smithfield Deal

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According to media sources, Starboard Value LP, one of the largest shareholders of U.S. meat producer Smithfield Foods, Inc. is now in favor of the company’s proposed merger deal with Hongkong-based Shuanghui International Holdings Limited. Starboard, which has beneficial ownership of approximately 5.7% in Smithfield, also stated that it will vote for the deal at a special shareholders meeting to be held on Sep 24, 2013, as it has failed to find an alternate buyer for the company.

Starboard had earlier planned to vote against the proposed merger deal and tried hard to compel Smithfield to delay the shareholder meeting. It sought other offers that would provide greater value to Smithfield shareholders. A few weeks back, Starboard sent a letter to Smithfield’s board stating that it has received written interest from other parties to buy Smithfield's assets at a higher value.

Earlier, Starboard had also sent a letter to Smithfield's board of directors in June stating that it will be in the best interest of the shareholders if Smithfield divests its various divisions like pork, hog production and international business individually rather than divesting the whole business all at once. Starboard also stated that the estimated value of the company is $9 billion – $10.8 billion or $44 – $55 per share, which is much higher than the deal price of $34 per share.

Per the deal signed on May 30, Shuanghui will acquire all of the outstanding shares of Smithfield for $34.00 per share, totaling $7.1 billion, including Smithfield’s debt.

Smithfield was under pressure from another major shareholder, Continental Grain, which urged the Smithfield board to break up the company before the announcement of the Shuanghui deal. But Continental sold its stake in June after it was satisfied with the Chinese offer.

Most recently, two independent advisory firms Glass Lewis & Co. and Institutional Shareholder Services also urged Smithfield shareholders to vote in favor of the proposed deal. On Sep 6, the Committee on Foreign Investment in the United States (CFIUS) also approved the proposed merger deal after a 45-day review period. Smithfield and Shuanghui also announced that the parties have received governmental merger clearance in Ukraine.

The deal is expected to close by Sep 26 following shareholder approval on Sep 24. If approved by shareholders, it will be the largest ever Chinese takeover of a U.S. company.

The deal will open the doors for Smithfield to expand its footprint in China taking advantage of Shuanghui's solid distribution network. As far as Shuanghui is concerned, it will be able to meet the growing demand for pork in its domestic market by gaining control of Smithfield’s brands such as Smithfield, Armour and Farmland.

Smithfield holds a Zacks Rank #4 (Sell). Meat producers that are better placed and are worth considering include Pilgrim’s Pride Corp (PPC - Snapshot Report) and Tyson Food Inc (TSN - Analyst Report) which hold a Zacks Rank #2 (Buy). Another food company Dole Food Co Inc with a Zacks Rank #2 is also worth considering.

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